Joshua S. Young - Vice President of Investor Relations Frank H. Laukien - Chairman, Chief Executive Officer and President Charles F. Wagner - Chief Financial Officer and Executive Vice President.

Isaac Ro - Goldman Sachs Group Inc., Research Division Steve Willoughby - Cleveland Research Company S. Brandon Couillard - Jefferies LLC, Research Division Douglas Schenkel - Cowen and Company, LLC, Research Division Timothy C. Evans - Wells Fargo Securities, LLC, Research Division Jonathan P.

Groberg - Macquarie Research Derik De Bruin - BofA Merrill Lynch, Research Division Ross Muken - ISI Group Inc., Research Division Daniel L. Leonard - Leerink Swann LLC, Research Division Daniel Anthony Arias - Citigroup Inc, Research Division Tycho W.

Peterson - JP Morgan Chase & Co, Research Division Bryan Brokmeier - Maxim Group LLC, Research Division Sung Ji Nam - Cantor Fitzgerald & Co., Research Division Peter Lawson - Mizuho Securities USA Inc., Research Division Bryan Kipp - Janney Montgomery Scott LLC, Research Division Paul Richard Knight - Janney Montgomery Scott LLC, Research Division.

Good day, everyone, and welcome to the Bruker's Second Quarter 2014 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. This time, I'd like to turn the conference call over to Mr. Joshua Young. Sir, you may begin..

Thank you very much, Jimmy. Good afternoon. I'd like to welcome everyone to Bruker's second quarter 2014 earnings conference call. My name is Joshua Young, I'm the Vice President of Investor Relations for Bruker.

Joining me on today's call are Frank Laukien, our President and CEO; and Charlie Wagner, Bruker's Executive Vice President and Chief Financial Officer. In addition to the earnings release we issued earlier today, we will also be referencing a slide presentation as part of today's conference call.

The PDF for this presentation can be downloaded by clicking on the earnings release hyperlink on Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. A reconciliation of our GAAP to our non-GAAP financial statements is included in our earnings release and in our webcast presentation.

Before we begin, I'd like to make the usual Safe Harbor statement, which I show on Slide 2. During the course of this conference call, we will make forward-looking statements regarding future events or the financial performance of the company that involve risks and uncertainties.

The company's actual results may differ materially from the projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K, as well as other subsequent SEC filings.

Also note that the following information is related to current business conditions and our outlook as of today, August 6, 2014.

Consistent with our prior practice, we do not intend to update our projections based on new events -- new information, future events or other reasons prior to the release of our third quarter 2014 financial results in November.

We will begin today's call with Frank providing a business summary of our second quarter performance and an update on our outlook for the second half of 2014. Charlie will then cover our financials for the second quarter in more detail. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien..

First, we expect our CAM division results to be considerably weaker than originally anticipated due to our efforts to restructure or divest 2 significant product lines. Second, BEST will generate approximately $10 million less in revenue for Q3 of 2014 due to a delay in the customers' ability to accept delivery of our Rosatom pilot line.

Third, BioSpin Group orders in the first half were weaker than anticipated. While we do foresee a meaningful pickup in BioSpin growth, order growth in the second half of the year, the later order timing results in less revenue than expected in 2014.

Finally, BMAT group order in the first half were also weaker-than-expected, as we have not yet seen a meaningful acceleration in demand from our semiconductor, data storage and other microelectronics customers.

While the majority of our reduced outlook is related to our camera structuring and plant divestitures, we are nevertheless disappointed that other factors are also contributing to our reduced outlook for the full year 2014.

We are taking actions to reduce our cost and do what we can to mitigate the impact of the expected second half 2014 revenue shortfall.

Please now turn to Slide 6 and 7 where I will provide additional details about the Q2 2014 performance of our 3 BSI segment groups and our BEST segment, and I will also comment on their outlook for the second half of 2014. I will start with the Bruker BioSpin Group.

BioSpin delivered another quarter of mid-single digit revenue growth with the Americas and Asia driving this performance. Our revenue growth in Japan benefited from installations that were being completed as a result of the previous Japanese special supplementary budget or SSB.

One of the exciting developments during the second quarter of 2014 was that we completed the installation of the world's first horizontal 21 Tesla magnet for FT-ICR.

This new magnet will provide researchers with the highest resolution, mass spectrometry technique available to analyze complex mixtures including applications in the petroleomics, dissolved organic matter, metabolomics, top-down proteomics and MALDI imaging.

From the BioSpin Group both are Magnetic Resonance Spectroscopy or MRS and our Preclinical Imaging or PCI division performed well in Q2 of 2014. The PCI division reported improved performance for its Molecular Imaging product.

As a reminder, we added these Molecular Imaging products to our portfolio via an acquisition nearly 2 years ago, and we are pleased that the performance of these products is improving.

Concerning our outlook for the second half of 2014, we now expect that our BioSpin Group will see a higher percentage of its full year 2014 new order bookings in the second half of 2014. Given the lead times required to install these products, the later order timing means that much of this revenue will shift out of 2014 into 2015.

We believe that the market is healthy given that we are expecting good growth in both revenues and bookings for the full year. I'd like to now turn into our CALID group, which reported a mid-single digit revenue decline year-over-year in the second quarter of 2014.

Our Life-Science & Clinical, LSC division generated low single-digit growth in the quarter. One of the highlights for the division during the second quarter was the launch of our new impact II ultra high-resolution QTOF mass spectrometer at ASMS in June.

impact II provides industry-leading sensitivity for proteomics, biomarker research, identification of impurities and residue screening. We have seen strong interest in impact II since its launch, and I'm optimistic that this will be one of our faster growing products.

Our MALDI Biotyper solution continues to generate robust growth in the second quarter of 2014. With 2 quarters on to our belt but selling a U.S. FDA-approved version of the Biotyper, we believe that we continue to be the U.S. and worldwide market leader for MALDI identification in microbiology.

Another milestone for the MALDI Biotyper in the second quarter was gaining approval from the Chinese FDA. China is also an untapped and large market for us to penetrate with the biotyper, and we saw immediate order growth towards the end of the second quarter in China. Finally, we also received regulatory approval in Brazil during the quarter.

Our CAM division posted another quarter of weak performance in Q2 and we expect to see a further slowdown in the CAM business after our restructuring announcement.

With our decision to stop offering gas chromatography and gas chromatography single cross mass spectrometry systems, as of July 23, 2014, we expect the CAM division's financial performance to deteriorate for the remainder of 2014 and until the divestitures and restructuring are complete.

We expect that CAM's revenues in 2014 will decline by more than $20 million compared to 2013 and its non-GAAP operating loss will be a few million higher in 2014 than its full year 2013 operating loss. Nearly all of this decline will happen in the second half of this year.

This is the single most material driver of our lower guidance for fiscal year 2014. While CAM's weaker performance hurts us in the second half of 2014, we believe that we are taking the right steps to reduce CAM losses significantly in 2015 and further in 2016.

In the CALID group, our Detection division continued to experience delays in obtaining German export licenses, as Germany has slowed the review and approval process for certain types of products.

Since Detection's revenue tend to be concentrated among few large transactions, the continued delays had a material effect on CALID's revenue performance in both Q1 and Q2 of 2014.

We are pleased that we generated very strong new order bookings in Detection in the second quarter of 2014, which bodes well for 2015 and which may help us in Q4 of 2014, depending primarily on the timing of export licenses. On Slide 7, I show performance of our BMAT group and then of our BEST segment.

The Bruker Materials Group or BMAT's revenues was flat in Q2 2014 year-over-year. While research and academic markets remain healthy, we have not seen the uptick in demand from semiconductor, data storage and other microelectronics markets that we had anticipated.

As a result, we're also expecting weaker-than-originally-expected revenue and margin contribution from the BMAT group in our second half of 2014. The flat performance of our BMAT group is also a contributing factor to our reduced guidance for fiscal year and full year 2014.

Within the BMAT group and [indiscernible] division grew as a result of our [Audio Gap] portfolio for cell biology and neuroscience research. We believe that Vutara is a technology leader here and they also have a very strong IP position in this area.

So we are excited to offer these unique capabilities to our cell biology customers in addition to multiphoton and fast confocal live-cell imaging.

In the second quarter of 2014, our Bruker Energy & Supercon Technologies, or BEST segment, posted its second straight quarter of 12% revenue growth and BEST also improved non-GAAP operating margins in the second quarter of 2014, if you exclude the effects of the Rosatom license revenue in Q2 of 2013.

BEST has been the beneficiary of strong demand for low temperature superconducting wire which is used in MRI magnets, as well as for increased delivery for the Ether fusion energy research and extra large scale scientific research projects.

BEST was recently informed that the customer for the Rosatom HTS research pilot will not be able to accept delivery and installation in Q3 of 2014, even though we already have everything tested, ready and packed for delivery.

This is disappointing as it will push approximately $10 million of revenue out of our third quarter 2014, most likely into 2014. It is not currently clear when we will be able to deliver this pilot line to Russia. This situation is a contributor to our reduced guidance for fiscal year 2014.

Now, I'd like to make a few closing remarks before turning the call over to Charlie. While Bruker generated improved financial results in the first half of 2014, we understand that our lower outlook for the second half of the year and therefore, our reduced guidance for the full year 2014 is disappointing.

Much of the reduced expectations for our second half of 2014 are a direct result of the major CAM restructuring and divestiture plan, which will have significant financial benefit in 2015 and beyond.

The key message that I would convey is that we are fully committed to taking the right actions to improve the long-term financial health of Bruker's business. While these decisions are difficult, you can clearly see that they are establishing the path to make our portfolio more profitable.

We expect to report year-over-year improvements in our operating profit -- profitability, non-GAAP EPS and cash flow during 2014 and our focus heading into 2015 is setting up Bruker to deliver an attractive combination of revenue growth, operating margin, EPS growth and cash flow expansion. With that, I will now -- to turn the call over to Charlie..

Our days of inventory outstanding were 229 days compared to 223 days in Q2 2013. Our day sales outstanding were 57 days compared to 58 days last year. Finally, our days payable totaled 42 days compared to 29 days in the previous year.

While our CapEx spending was also down significantly through the first 6 months of the year, we expect that our capital spending will accelerate somewhat in the second half of the year due to the timing of capital projects. We've now reported 4 straight quarters of positive free cash flow, which is a considerable improvement from our past.

The drivers of this improvement are a higher focus on working capital from the entire organization due to changes in incentives and newly launched restructuring initiatives, specifically aimed at improving working capital. Now I'll turn to our financial guidance for 2014, which I show on Slide 19.

As Frank mentioned earlier, Bruker got off to a good start this year, but is now expecting a weaker second half of 2014 than we originally anticipated. The primary reason for the reduced outlook is our CAM division. A key part of our 2014 guidance and business plan was to drive meaningful improvement in the operating performance of the CAM division.

Now that we've made the decision to divest or restructure most of the assets within CAM, we need to reset our expectations for 2014, since we stopped taking orders for some of the CAM products in July.

As a result of the restructuring actions, we now expect to generate approximately $20 million less in revenue from CAM in 2014 than the original assumptions in our guidance with nearly all of this decrease occurring in the second half of the year.

In addition, we also now expect that approximately $10 million of revenue from BEST Rosatom pilot line that was scheduled to occur in Q3 2014 will not be recognized this year. Finally, we have slightly lower revenue outlook for our BioSpin and BMAT groups in the second half of 2014.

Both businesses have lower-than-expected orders in the first half of the year and while a stronger order growth is expected in both of these groups in the second half, the later order timing means that some revenues now flip into 2015.

The net result is that we now expect our revenues to be approximately flat in the second half of 2014 compared to the second half of 2013. This will result in full year 2014 revenue growth of 1% to 2% compared to our previous guidance of growth of 3% to 4%.

As a result of our revised revenue outlook, we're reducing our non-GAAP EPS outlook by $0.07 and expect to be in the range of $0.78 to $0.81 compared to our previous guidance of $0.85 to $0.88. This guidance revision further assumes a very weak Q3 compared to Q3 2013 and a sequentially stronger Q4 2014.

As a reminder, we had a very low tax rate of 20% in Q3 2013, which is also part of the year-over-year weakness we expect to see in Q3 2014. We are making a small update to our currency assumption as the U.S. dollar to euro rates stood at $1.37 and the yen to dollar rate at $1.01 at the end of the second quarter.

So I'll close by stating that our reduced second half growth outlook is probably disappointing and partly its just the direct consequence of our announced CAM restructuring, but we're still making good progress in transforming Bruker in 2014. We're strengthening our balance sheet and cash flow.

We're taking steps to reduce the considerable margin and EPS drag created by CAM, and we're making progress in improving our systems and business processes.

As a reminder, we expect to reduce CAM's annual revenues by approximately $50 million to $70 million, but improve CAM's profitability by $15 million to $20 million annually, once our plans are fully implemented. With that, I'd like to turn the call over to Joshua to start the Q&A session..

Jimmy, please assemble the Q&A roster..

[Operator Instructions] Our first question comes from Isaac Ro from Goldman Sachs..

I wanted to just ask sort of a bigger picture question to both Frank and Charlie regarding the CAM restructuring. And generally speaking, I think, that business having been pretty important to the company over the last few years and obviously, the result there were not what you wanted. So i have to imagine it was a difficult decision.

So just how important is it in the grand scheme of the long-term restructuring of the company, this is like sort of something that we can look at as a turning point that will help you guys kind of deliver on the longer term growth and profitability growth that you have.

I'm just trying to put this in context with all the decisions that have been made over the last 12 months?.

This as Frank. Isaac, this is certainly one of the major decisions or the major decision and indeed, it was a difficult position, but I feel that's the right decision after we really gotten through a very thorough and pretty comprehensive bottom-up strategy review for the first 5 months of the year.

And as you have seen, we have been pretty judicious in our decisions. I mean there's GC-Triple quad technology and LC-Triple quad technology that we determine is strategically important and where we could overtime reach our satisfactory financial results, we believe, and those who will retain as our combined Bruker Daltonics mass spec division.

And there were other areas where we felt that others might have a better focus or broader set of products for trade elemental analysis, for instance, or areas where we felt that the market was not -- we were not sufficiently differentiated and therefore, chose to either divest or discontinue or/and restructure some of those operations.

But it's a very rational decision, obviously. I would've preferred with 3.5 years ago, if that it didn't come to that point, but it was clear that, that's what make sense for the business at this point. And also if you look around Bruker elsewhere, there are so many other opportunities in many of our other divisions and groups.

It's not that we've -- I think actually it will be a healthy process in addition to what's needed in the financial side..

And maybe just as a follow-up if I could.

On the overall demand outlook I mean, it sounded like the majority of the lower revenue guidance was the function of the specific actions you're taking in CAM, but can you just maybe help us get some confidence that the overall demand outlook for the rest of the portfolio remains healthy, whether it be in terms of orders and bookings.

I mean, I think this quarter you probably didn't give us much color around the order book as you might have in the past.

So just if you could put give us 1 minute or 2 of color around the demand outlook for the business at the backup of this year, that'll be great?.

Yes, it feel like the demand outlook for the full year and for the back half of the year, for Bruker BioSpin, for the BioSpin Group and for the CALID group excluding CAM is actually pretty -- it's really quite healthy. We did comment that it is that orders and demand are not that healthy for the BMAT group.

And in fact, the flat Q2 orders year-over-year are contributing to our reduced revenue expectations in the BMAT group.

Interestingly for that group, which had a flat start and what I say that much is timing, but there is less weaker demand environment that what -- we had anticipated, especially in the industrial and semiconductor space by the middle of this year.

We do see a pickup in the second half or we do anticipate that the pickup in the second half of the year, but I wouldn't call the BMAT market is healthy, although I do expect the sequential improvement of second half orders versus first half orders and back to BioSpin and CALID, I think those markets are reasonably healthy, and our demand and our competitive position in demand for our products in these markets look reasonably healthy to me..

Our next question comes from Steve Willoughby from Cleveland Research..

I was wondering if you could just help us quantify for the EPS guidance reduction, how much is related to CAM, how much is related to BEST and how much is related to the softer orders in the 2 different businesses, if there's any way to kind of quantify those impact?.

I think we outlined in our prepared comments that from our revenue reduction, revenue guidance reduction, CAM is about half of the revenue guidance reduction. It ends up being, I guess, I would describe it as a disproportionately larger share of the EPS reduction. A lot of the CAM -- the increased CAM losses are going to occur in the U.S.

whereas we don't get tax benefits on those losses, so the hit on EPS is disproportionately large. We do have a little bit of an impact from the other revenue reductions, but we also have some benefits are coming into foreign exchange losses coming in lower than they did last year, at least in the current currency environment.

So think of it as a big hit from CAM on the EPS line, a smaller hit from the other pieces of the guidance reduction with those being then partially offset by an improvement in foreign exchange losses..

Okay. And then just one follow-up then.

Has anything happened with CAM in the 2 weeks since you announced the restructuring that's different than what you have anticipated or you just try to figure out what's been going on more recently?.

No. We've stopped taking orders for some of the products in July. We commented on that in the script. Aside from that, no, we have conversations ongoing with folks who are potentially interested in acquiring some of the assets of the business, I have no comment at this point on whether we will be successful with those discussions, but they are ongoing.

And aside from that, nothing new to report, we're just now working through the implementation of some of the decisions that we announced..

Our next question comes from Brandon Couillard from Jefferies..

Frank, I would be curious to hear your general thoughts on the global academic market, sounds like your commentary is a little more constructive than what we've heard from others in the period. Just some thoughts there..

Yes Brandon, gladly. Europe remains reasonably strong with Germany and U.K., particularly strong. Eastern Europe and Russia, very weak and to non-existent right now. The U.S. is quite strong, U.S. demand pattern this year for most of our divisions are pretty strong growth. And as for the [ph] of course, it comes from a weaker basis last year.

And Japan is quite weak but that's because of course, there's no special supplementary budget or only a de minimis special supplementary budget compared to a year ago. And I think those are the major drivers. We think India is coming back a little bit, that Brazil is coming back a little bit after weak start to the year.

But I think strong U.S., weak Japan and overall, in the aggregate, a reasonable academic plus non-academic plus medical research pattern, also government research. So overall those market are in the aggregate, not bad. With the U.S. being remarkably strong and Japan being weak year-over-year because of last year's SSB..

And then one for Charlie on the balance sheet and cash flow, I guess 2-part question as you go through this process with CAM, are there any working capital effects that we should consider in the second half of the year and then what is the business look like from a working capital profile perspective with -- if we took CAM out of it altogether?.

So there will be some, obviously there will be some impact from CAM, probably the biggest impact will be in inventory whether we move forward with divestitures or ultimately with restructuring, quite a bit of inventory should come off the balance sheet.

Obviously, there won't be a source of cash if we're able to achieve the divestitures, otherwise it would essentially be a write down and contribute to the restructuring charges. So I think there's a cleanup period that we're going to have to go through over the next 6 months or so that will have some impact on working capital.

CAM's working capital consumption, I would say, is slightly worse than the Bruker average, but not so much worst that the portfolio looks radically different without it. So we're continuing to move forward with working capital reduction initiatives in every region and in every business.

As I mentioned, we've had some good success this year on the receivables side and on the payable side. We had a good step forward on inventory in Q1, a little bit of step back in Q2, but the focus is clearly there and we've got a lot of programs identified to drive inventory down further towards the second half of the year..

And our next question comes from Doug Schenkel from Cowen and Company..

I have 2. So first question, just some clarifying math, you reduced revenue guidance by just over $35 million at the midpoint. $10 million of this is Rosatom, $20 million of this is CAM. So it looks like net of FX, you're reducing guidance for everything that was in Rosatom and CAM by just over $5 million.

And keeping in mind the form of these 2 dynamics, Rosatom was described as a timing issue and CAM is something that decision clearly improves the business over time.

So if this math right, Charlie?.

I'd say the reduction is more like $40 million. So you're remainder there is closer to $10 million than $5 million..

Okay. So that gets me to the second question. So we're talking about a $5 million to $10 million cut, excluding Rosatom and CAM.

So can you just explain why you seem to be emphasizing so much the challenges beyond CAM and Rosatom given this math and really what we're talking about here is just over 30 basis points of growth which in the grand scheme of things rounding air.

I'm just trying to get are there concerns about your ability to hit these numbers and that's why you sound the way you do, or are you just continuing this trend of going under your way, I guess, to really keep expectations low?.

It's a couple of things. Orders were soft in the first half. And as we commented, we're expecting a weak Q3, followed by a strong Q4. And so while CAM and the BEST revenue push out contribute to the weaker second half and the weak Q3, BEST and BMAT also contribute to the weak Q3.

And so we're going out of our way to signal the weak Q3, followed by the strong Q4. I think we've always tried to give pretty good color on the demand that we're seeing, and so our guidance coming down from 3% to 4% to 1% to 2% is pretty meaningful in our eyes and we wanted to characterize all the drivers of that..

And our next question comes from Tim Evans from Wells Fargo Securities..

Frank, what are the factors that you think created the lower BioSpin orders in the first half and do you -- how much confidence do you have for those will result in Tecan in the second half?.

Yes, we got to analyze this a little bit, and to some extent, actually the factor is almost last year. Last year we had a bit of an unusual order pattern at BioSpin, and the first time I can remember, we actually had more than half of the orders in the first half of the year.

This year, I think we're close to more typical pattern with more than half, maybe 54%, 55% of orders in the second half of the year. We only have 3 years of data on that and the rest is more experience from prior years, but we didn't have consolidated data at the time.

And indeed, as we were budgeting the year, we probably kept that a little too even throughout the year.

So our orders in the first half of the year what we thought that what we had expected in BioSpin, but we have reasonable visibility and obviously not perfect in that business and we're pretty optimistic about orders and we have a lot of not quite orders yet, but cases that are decided we pretty much know we're going to get this deal.

But no, we don't have a written contract yet. So it is a more typical order pattern and it is delayed compared to what we experienced last year and how we had modeled this year and how we had got into the model forecast for this year. In BioSpin, I would argue that these are timing issues and there is nothing really wrong with that market.

The PCI markets are growing quite nicely and the MRS markets are low- to mid-single digit growth for the full year and look healthy, but there is a timing issue. BMAT, I have conceded and said that there's a lot of timing for the markets so are we could than what we had anticipated for this group..

Okay.

And are you willing to offer any more commentary on the MALDI BioTyper roll out? Should we be looking for sort of bullish placements here in the second half or maybe early 2015 given the recent regulatory approvals?.

I wouldn't call that a ballpark, but it's going to steadily improving. The MALDI BioTyper certainly is seeing double-digit revenue growth and it's growing a little bit faster in the first half of the year than what we had anticipated. I don't know that there is a ball, but it adds up nicely and that's how I would characterize it..

[Operator Instructions] Our next question comes from Jon Groberg from Macquarie..

Charlie, how come -- I guess since you guys have announced that you're exiting CAM, why won't you just move out into discontinued operations?.

Yes, Joe, we're not exiting CAM entirely. We're obviously -- we're exiting some unprofitable product lines and that doesn't qualify for discontinued ops accounting..

Okay.

On the Rosatom revenue, is that a function of some of the impacts of what's happening in the Ukraine and some of the new rules that have been passed or is it something else that's delaying that $10 million?.

We think it's something else and not directly related. It is clearly a customer issue as they cannot presently import. And the reasons that have been cited are not directly related to the well-known crisis.

And so -- but given that entire background, while we hope that we can deliver it in 2015, I'd have to say we're -- it's a little bit indefinitely delayed. It may be 2015, it may be -- we cannot ascertain right now if and when we can deliver this due to the geopolitical environment.

It presently, as best as we can read, does not fall under any export restrictions or limitations, so I think this does not fall into any of the categories, whether additional sanctions or embargoes. It is a research product line, it doesn't go into certain bad sectors, from the European or U.S. perspective, as far as we can read this.

So at this point, it's a customer issue and it may be that the customer can't sort this out, it doesn't seem to be primarily related to the crisis, but it's a little bit murky for us to figure out what exactly all -- how this all hangs together, quite honestly.

At this point, we are ready to go and it's something on trucks and we've taken it off the trucks and put it in our warehouse. But at this point, the customer cannot accept delivery and cannot import the equipment..

If I could just follow up on that.

Generally in Russia, are u seeing some of the impacts of some of the sanctions and things going on as your general business in Russia outside of this particular product? And then, Charlie, just for you, you seem to be going out of your way of -- I know you just gave your quarterly guidance, but trying to be pretty explicit about Q3 and Q4.

So would you be willing to give any more explicit guidance on what you expect for Q3 and Q4? ..

Let me start with the first part of your question. And so Russia, there's a couple of things going on.

Independent of Ukraine and Crimea and all of that, it turns out that the major restructuring in the Russian Academy of Science, which is the #1 driver for research equipment demand, as they decentralize a little bit and give more purchasing power to their universities, which are not part of the Academy of Science system, there are delays in research orders in Russia this year no matter what.

You compiled that with extreme caution by Russian industrial customers to invest in CapEx right now because they probably don't know what the economic outlook is other than it doesn't get better. And so it's a weak demand picture. It doesn't look like any of our products are affected.

There might be certain sectors, we're not selling much into the oil sector there, but other than that, our products aren't really formally affected, but the Russian economic weakness plus independent of all of that a long planned restructuring of the Russian Academy of Science makes for weak demand.

However, there's some ongoing demand in Russia, but it is quite a bit weaker than what anybody had expected at the beginning of the year.

And with that, I think the part 2 of your question?.

Yes, Jon, not too much on the card. Q3 is likely to -- from revenue standpoint, is starting to look flat year-over-year. And then keep in mind that last year, we had an unusually low tax rate of 20% in the third quarter, whereas this year we're running closer to 30%..

Our next question comes from Derik De Bruin from Bank of America..

On the -- you've done a better job in terms of or good job in terms of controlling R&D. I'm just curious in the R&D, it's down like 6% first half of the year, first half of the year comparison. How much of that is sort of tied to CAM? Have you been in -- I'm just curious in terms of do you think what you're basically doing the R&D focus..

If ever, the biggest year-over-year reductions were in CAM and BEST, we've also been, I guess, more prudent with some decisions in some other business, as well, obviously late last year, we did some rightsizing across the BMAT portfolio as well and so that has follow-on benefits into 2014.

So I guess the important point is, it's not that we're kind of flashing 5% or 6% across the board, we're pretty selectively either reducing investments that we don't think we're going to yield commercial benefits in a reasonable amount of time or in businesses that went through kind of a rightsizing last year..

That's a very strategic process. It's also a process-driven, so as we've now really implemented pretty well this product life cycle profits.

Some projects that are smallish and don't have a good ROIC may just not be continued, or maybe put aside for a while or something stay at advanced stage, but they are rather than discontinue with further expenses for another year or 2.

So in a way it's a sign of our process improvement in addition to some strategic choices where to investment in a more dynamic allocation of expenses investment..

Just sort of getting at this in terms of -- that sort of the asset value you're going to.

But I'm just curious in terms of about how do you believe sort of think about R&D growth as we go into 2015? And are you going to keep that savings or are you going to invest into the other projects?.

Now we're in the middle of our strategy process, which will finalize in September and then go into the budgeting. So it's a little too early for us to make any -- it will be -- we use the same processes in the overall strategic dynamic allocation approach that is a little bit new to, but that is new to Bruker in the last year, perhaps.

But I cannot predict yet the results and the choices that we will make for 2015..

So can you think about what sort of going to be the impact on the gross margin for ramping down CAM, and so how should we think about that modeling in the second half of the year? And then once again, as we sort of -- assuming that you're able to divest it, how should we think about the margin impact in 2015..

Qualitatively, CAM clearly has among the growth margin. Certainly, within the BSI segment and I think it'll be more of a 2015 impact than, I think, we're not quite prepared to quantify that yet for 2015..

Okay.

And on the BMAT business, some of the -- you said some of the things about the semiconductor and electronics business that we pursued from other companies but I'm just curious are you seeing anything from competition in Japan, also in there you do have some x-ray businesses where do you have some competition and I'm just wondering if the Japanese companies have been a little bit more aggressive?.

Yes. Yes, they have. And the answer is correct. I mean, except to say anything, one of its 2 big competitors is a Japanese company, and they're, of course, benefiting from over 1.5 years, 40% lower yen versus euro in this particular case and they're using -- they're trying to use that.

We see that a little bit in other mall as well with JOL, and so that is a contributor. Yes, clearly, it's not only that has hurt bottom margins for the business we get, but you look at the lower yen, it is also have both indication that you've outlined, that's correct..

Our next question comes from Ross Muken from ISI Group..

As we think about, I mean this business has now done somewhere between, I don't know, $0.70 to $0.80 of earnings since, I think, 2010.

I mean, if you think about the challenges you faced and sort of the efforts you made to obviously improve the profitability and sort of create some shareholder value here, do you feel like there are some -- maybe in the more recent times since you began the restructuring, there things that you pushed in the business maybe that you could have faced in differently or maybe you could have identified the CAM asset as something that will be a challenge earlier, and then focused on that, it feels like every few quarters here, something pops up that kind of resets the earnings back to normalized rate in that sort of high 70s, low 80s.

So I'm trying to get a sense of the kind of graded have you've done over the last 1 to 2 years and do you sort of embarked on this.

Is there anything you really wish you sort of -- would've done differently and is there anything when you look at it that's probably maybe had a little bit more impact on the business than you would have thought?.

I feel really good about the leadership and the profit changes and the transformational step that we're taking here.

And clearly in hindsight, if I could do the CAM acquisition 3.5 years or 4 years ago exactly, a little bit more over 4 years ago, I would do it again, but I would be much, much more selective in markets and product lines that we tackle.

I'm obviously pleased that we got the triple quad technology and that's the really great addition and very complimentary to a lot of other things we're doing, but other things were too ambitious at a time, strategically.

And we tried to initially -- I tried to initially fix that with the more gradual restructuring, exit a site, do this investment R&D and if there's -- if I could do it over again I would take the major CAM, more radical steps that we're taking now a year or 2 earlier. But simply a lesson learned, I hope.

And I think the other things I think we're on track. I mean, there is a significant currency headwind that we've been facing last year that we're still facing this year, but getting improvement in lieu of that.

And there's a lot of things that are happening in restructuring and outsourcing and lean transformation that I think will have a good continued ongoing buildup of margin effect from gross profit margin and then of course, OpEx control.

So there's a lot more work to be done, but I think one mistake, if you like, whereby not acting earlier and trying to do it more gradual restructuring was on the CAM side..

Okay. I guess what I'm trying to gauge is sort of, Frank, what's your level of frustration with how things have trade fired. I'm just trying to get a sense for -- I know when Charlie and others came in, there was sort of a view of improving operational excellence. So this has always been a great R&D organization.

There you've taken some of the working cap and we've seen some efforts done on the SG&A line. Do you feel like when you look at sort of what's been accomplished, do you feel like this is going to be -- we've been telling The Street this is a long-term transition.

And so, ultimately, what's happened is sort of explainable [ph], or do you feel like the level of frustration is sort of the lack of responsiveness of the organization, I guess, or the choppiness the business has seen sometime is kind of maybe have been a little bit frustrating?.

I don't get frustrated that easily and I do know with currency and with the weakness in the BMAT sector, there are some headwind,s, its steeper uphill at least temporarily, but some of these things also don't last forever.

I mean, we will not be an investor or semiconductor low point forever, although it has taken longer and that is somewhat frustrating. I agree. But I feel good about the steps we are taking and I think we're taking the right steps and I think the team is also actually reasonably upbeat. There is some improvements in the market that we are seeing.

I think we're excited about our products. I think we're excited about the transformation, the outsourcing. So I think we're taking the right steps. I do agree that in CAM, now that's not done yet, now it's been implemented, but now that a fundamental decision is there that should have been done at an earlier stage.

But of course, that's for the benefit of hindsight and the clarity after the decision..

Our next question comes from Dan Leonard from Leerink..

So Frank and Charlie, it's unclear to me what CAM profitability is going to look like after the restructuring.

Is CAM still going to be losing money?.

Again, on a direct basis, CAM is going to be close to breakeven when immediately after the restructuring activities are done.

The reason we did the profitability improvement the way we did is because there's an amount of fixed costs essentially that are Bruker infrastructure G&A offices, et cetera, that are allocated on CAM right now that they don't kind of easily go away as a result of this restructuring.

So the kind of the profitability of CAM improves quite a bit, but it's going to need to continue to improve even beyond the end of these restructuring efforts..

Got it.

And Charlie, do you expect to conclude the CAM divestitures to wind down by end of '14 or could any of these activities breathe into 2015?.

No, it could breathe into 2015. Keep in mind that financially, obviously, we have a great incentive to go as fast as possible, but we're dealing with employees and we're dealing with customers who -- customers in particular, who need to know what the future holds for them in terms of service and support for instruments that they purchase.

So we can't -- believe me, we're going to go as fast as we possibly can, but there' are some employee and customer considerations and then also we're trying to work some divestiture transactions, as well. So all of those things could result in some of this works spilling over into 2015, but clearly, we're going to go as fast as we can..

And I think the bulk of the restructuring and the restructuring charges will be in this first -- second half of 2014..

It should be. Yes, it should be..

Our next question comes from Dan Arias from Citi..

Frank, within CAM, I'm just thinking about the stuff that you're keeping there.

You made a comment on triple quad, so hoping maybe you can just give us an update on how Optics has been there since the launch of the EVOQ systems?.

Right. we're keeping the -- basically the LC technology, which we don't use to be an LC company, but to build LC-MS system that we didn't even mention because that's how it has been integrated fully in a way, so there's no further restructuring to be done there.

And the triple quad, both GC and LC triple quad, and I think since our launch of the EVOQ series of LC triple quad, I think we've got a nice market, a small market, I would say, but I think I'm really pleased with how this product has now become stabilized in terms of it is really a robust product, it has great hardware, great source technology.

So I think the productivity of these products and the customer acceptance, by and large, has been really quite good and when you get into a completely a new field like this, you expect to have some creating problem.

We had some, but overall, I think we've overcome those, and I think we have a small, but satisfied customer base now that will provide good word-of-mouth and references and follow-on orders, and we're now getting into the phase where we're looking at more workflow and applications driven development.

There's always incremental improvements on the hardware, and of course, software development never ends, but I think there's a lot of market and workflow vertical market, if you like, that we're now pursuing where we think will also get even more differentiation in certain vertical segments.

So at least for now, it's a good fit with everything else we're doing with high resolution, accurate QTOF and other systems, so that it's a really good fit..

Got it. Okay. And then just to go back to the BioTyper.

Curious if you're seeing optic from the community hospital setting as well as some of the larger academic centers? And then maybe just on the menu of comment on the current thought in terms of timing for getting gram positive and used approval?.

Yes. So community hospitals, it's not in a country at this point, but in Europe, in some countries we really are at that level where a much smaller hospital never anticipated to MALDI BioTyper because it's becoming like a standard of care. In the U.S., we're not at that level yet. It's too early.

The market penetration is beginning unpredictably so with the larger hospitals, and of course, also others like regulators and pharma companies and other hospital customers. FDA -- U.S. FDA claim to win clinical trial and we would hope to have that second claim before the end of the year..

Our next question comes from Tycho Peterson from JPMorgan..

Question on spending on SG&A in particular. You guys were up by $6 million sequentially. I think Charlie you said $2 million and that was FX and a lot of the rest was related to the MALDI Biotyper.

So can you maybe just talk about were there some upfront costs that you embedded here and should you start to see a little bit more SG&A leverage in the back half of the year? And then as we think about MALDI BioTyper there's obviously a lot of competitor trying to come in with culture free method, so could you just maybe touch on the competitive dynamics, that will be helpful..

Sure. On spending, the year-over-year increase Q2 last year was -- I would say, was exceptionally low. Sequentially, you're right that we're up about $6 million SG&A. Q2 is, in addition to kind of currency change year-over-year, sequentially Q2 is a very heavy period for trade shows.

Bruker was represented at a lot of trade shows and Burker was represented in a lot of trade shows, into a lot of marketing in Q2. A lot of that related to life science and the MALDI Biotyper, but not exclusively that.

So just kind of marketing and trade shows in general were up quite a bit in Q2 and then as I mentioned this been some spending in rounding up that corporate infrastructure and some of the projects we have ongoing around some of our systems and some of that hit in the second quarter as well..

And I would simply as well correct, obviously, and I would add that the regulatory part and the regulatory spending on MALDI BioTyper in multiple countries for multiple claims, that is clearly increasing. But it's a well worthwhile investment.

This is a good gross margin product and it, obviously, has a very good growth in still large untapped markets, and further lags [ph] as we add additional capabilities to the base platform..

And could you touch on the competitive dynamics as well, Frank, for the MALDI BioTyper because if you think about the new systems coming into the market?.

Well, having been at recent conferences, I don't -- I didn't see any change in competitive dynamics and we believe we continue to, if anything, extend the capabilities and performance gap, which I think positions us to be an overall leader in the capabilities of that solution for MALDI identification and increasingly this is a work in progress also for selected and susceptibility asset.

And -- so I think our competitive position has been improving and I think commercially, I think we continue to be the market leader and just about any country, and certainly, any region in the world that I'm aware of and what I have in data. So I think that feel very good about our competitive position for this product..

And last quarter you had called out pricing dynamics and lower pricing for certain products.

Can you maybe just touch on the impact on pricing in the quarter and what you're embedding for the back half of the year?.

I think the pricing discipline that we are -- I think is taking hold in certain areas and earlier in the year, we had -- also last year, we did see some pricing pressures in this industrial areas where demand had been weaker and in some of the industrial areas, demand has picked up, and certainly microelectronics in particular, it has not picked up, microelectronics including data storage and semiconductor.

And there is some pricing discipline, there's new features where we tried to get higher average selling prices and better gross margin. The biggest driver of pricing pressure perhaps is the lower yen..

Our next question comes from Amanda Murphy from William Blair..

It's actually Keith [ph] in for Amanda.

I have got a quick one on, if you could talk about maybe outside of the CAM insertion, how the other operational improvements are going?.

Yes, they're going well. We're making progress there. The LSC division is doing a lot of the high-level assembly outsourcing of some of its MALDI-TOF product line and that's going very well. We have , obviously, a lot of things that you've got to get right and so far we've had a supply issue and the quality is there.

So we are pleased with that, that's up nicely for one of our larger product lines.

The Bio -- with a lot of the Bruker BioSpin, with a lot of their electronics connectics that they call it and other outsourcing where a major supplier has been picked already last year, but it's not like -- really something like a 6-quarter project to transfer more and more and more subunits over to that major supplier, contract manufacturer.

That's hopefully much going according to plan, and there's many other initiatives in each and every division. Every division has outsourcing and lean projects, not all of them are as visible and as large, but they're all making good progress on that. So I'm actually pretty pleased with these things in addition to the major CAM restructuring.

I think we're really on track and we're executing and we have more projects for the year and more projects for next year. So I think it's a good healthy ongoing process with steady progress..

Our next question comes from Bryan Brokmeier from Maxim Group..

You mentioned that CAM utilized some of the corporate offices and other G&A of the business, but beyond that, I guess I'm thinking of manufacturing facilities and sales force.

How integrated was CAM with the rest of the business?.

Yes. Manufacturing, not really at all. It's got its own location. You recall the we actually closed a CAM manufacturing facility last year. So I think there's it's pretty separable from a sales force standpoint.

Also, pretty separable, but again keep in mind that we are keeping the triple quad products to some of the CAM sales force is going to be staying with us and continuing to grow that product line.

So overall, I think the direct cost and sales and marketing, manufacturing, even in overhead to some extent, there's a large chunk that is very easily separable and identifiable and the amount that's allocated and not separate is proportionately relatively small, but harder to eliminate..

Okay. And you also -- you expect the CAM division to be around breakeven.

So margin expansion come from growing the new smaller CAM business, so what are the sort of the next steps to further improve that division's profitability?.

We're restructuring the factory and the location. We're consolidating factories with our other larger Daltonics factories, so there'll be factory footprint's consolidation and we also expect to gain a lot of -- we expect to gain a lot of efficiency there, plus further redesign to cost and taking out some expensive component.

So it's by design, by some of the R&D department and it's also by further restructuring of the piece that we do keep and footprint consolidation..

Our next question comes from Sung Ji Nam from Cantor Fitzgerald..

Frank, you talked about some competitive dynamics, I think, for BMAT and maybe Biotyper as well.

But I was curious about what are you seeing for BioSpin or other Daltonics in terms of other competitive dynamics?.

Sung Ji, BioSpin -- I mean, you're all aware that in preclinical imaging and MRI, there is less competition than there was in the past that has been announced and well publicized, the same is true for the ultra-high field segment of the NMR market, which not only be 10% of the NMR market, but that's helped.

I think in the overall NMR market, I think, at least outside of Japan, I think it's a more rational market where everybody -- there are all public companies that want to have decent gross margins and the overall margin -- operating margin improvement. So I think it's rational competition.

And in Daltonics, I believe a similar trend, by and large, with very capable competitors, all having some new products. We're pretty excited about what we launched this year, either in microbiology with the BioTyper or elsewhere. I think companies are primarily focused on profitable growth.

So nothing unusual there in the competitive dynamics, I would say.

It's a vigorous competition with capable competitors, but I don't think there's anything the AXS piece and a little bit of BioSpin currency piece, I think that's maybe the area that I highlighted as a negative, but I think the rest is actually the ones that I didn't mention are, I think, are reasonable competitive dynamics and reasonable pricing discipline, by and large..

Our next question comes from Peter Lawson from Mizuho Securities..

Frank and Charlie, so x CAM and BEST, would you flow the guidance for that BioSpin BMAT, would that have been captured in the prior guidance?.

We -- I think for Rosatom and BioSpin and BMAT, we would have to bring down the guidance a little bit as well. Obviously, to a lesser -- much lesser extent..

So even kind of BEST -- x BEST [indiscernible] business, such as for the BioSpin and BMAT, would that have not been captured in prior guidance?.

No. Listen, we talked about the reduction in guidance is -- on the revenue line is roughly half CAM and then you've got the BEST component. The remainder is a mix of puts and takes, right. The biggest negative that we talked about is the timing of demand in BioSpin and BMAT. There are some positives that offset some of that partially.

So in this hypothetical example, if all the other issues or other adjustments didn't need to be made, would we reduce it for BioSpin and BMAT alone? We would, yes..

Okay.

And then the CAM contribution and impact on revenues and EPS in 2013, what was that? Or can you give us kind of a picture of what organic and EPS growth would look like x CAM?.

We can't do that reconciliation right now..

And our next question comes from Paul Knight from Janney Capital Markets..

It's actually Brian Kipp on behalf of Paul. Just 2 quick ones. I think you highlighted 200 to 250 people reduced employee aside in CAM in context with the $50 million to $70 million in reduction, which suggest 50% to 70% reduction.

How is that? Is that about the same? Is that in that same range, or is it a little bit less there?.

I'm sorry, can you repeat the question? I didn't understand..

Okay. So the $100 million in reduction overall, or the $100 million in CAM revenues last year you're citing $50 million to $70 million in reduction from the divestitures. You also mentioned in your 8-K release that you're going to reduce headcount by approximately 200 to 250 people.

Is that equitable to the reduction in revenues or is a little bit less? I know you kind of alluded keeping some people online, but just kind of want to get some color there?.

Okay, I see, I see. It's a little bit less, I would say, proportionate a little bit less and then the restructuring charges are, I'd say, disproportionately larger because there are a lot of non-personnel costs that we're anticipating in the restructuring charges, including facility leases, fixed asset and inventory write-downs as well.

So those restructuring charges aren't solely for employee costs..

Yes, perfect. And then the other one....

It's not [indiscernible] line, about 2/3 of the revenue and about 2/3 of employees. So it's more or less in line..

Okay. I was just kind of thinking in context down the road as well if there is additional leverage on that side. Appreciate it. And the other one, just another quick one on BioSpin. I know you guys alluded to the back half order growth of probably 50%, 55%. Can you give some visibility there because I know....

No, sorry. No, no. As the percentage of our orders, we expect more than half, more than 50% in the second half. We did not say 50% order growth, sorry, if that was misunderstood. Last year, it turned out we had more than 50% of our orders in the first half, which was actually the unusual year at BioSpin.

Normally, more than 50% of the orders come in the second half..

And ladies and gentlemen, at this time, we have reached the end of the allotted time for today's question-and-answer session. I would like to turn the conference back over to Joshua Young..

Thank you, Jimmy. Thank you for joining us this evening. We encourage you to visit us at our headquarters in Billerica, Massachusetts. Thank you for your attention, and have a nice day..

Ladies and gentlemen, that does conclude today's conference call. We would like to thank you for attending. You may now disconnect your telephone lines..